Section 6: Less-Developed Countries

Less-Developed Countries (LDCs), or so-called developing or Third-World Countries, are mostly found in the continents of Africa, South and Central America, and parts of Asia. They have experienced significant economic hardships for a variety of reasons. These include

1. Lack of free market policies.
Many LDCs are governed by dictatorial governments, or governments with an excessive amount of power. These governments are threatened by free market policies and free international trade, for fear that it will upset the political status quo. LDCs also typically support tariffs, quotas, and other trade restrictions.

2. Improper domestic economic policies.
Because many governments in LDCs find it necessary to spend large amounts of money in order to maintain their powerful position and support their lavish lifestyles, they levy high taxes and print large amounts of money. Some LDCs have marginal tax rates of 50%, even on lower incomes. Printing money causes higher prices in the long run. Thus, inflation is, in essence, a tax on consumer products. Both the high taxes and high inflation discourage production and consumption, and slow down the economy.

3. Government corruption.
Government corruption in some form probably exists in all countries, but it is more significant in LDCs. Corruption is destructive to an economy. For economies to thrive, citizens need to be able to produce and consume in relatively safe environments. Most LDC governments not only neglect to protect their citizens, but actually participate in the violence, robberies, and assaults. A person in this environment loses the incentive to work hard, invest in a business, and accumulate wealth, because (s)he knows that it can be taken away at any moment.

4. Poor provision of public services.
Capitalism thrives on the existence of essential public services, such as roads, highways, and transportation systems (trains, airports), sewage systems, a sound judicial system, protection of private property (police, firefighters, military), and education. These services are non-existent or weak in LDCs. Therefore, capitalism struggles to succeed in these countries.

Without a strong capitalist foundation, LDCs will not experience significant economic growth.

For LDCs to grow and thrive, all of the above hardship factors need to change. No amount of financial help from developed countries can improve the lot of any LDC if these conditions remain.